With the beat on the gong
struck by Mr. Xu Kuangdi, mayor of Shanghai, the Shanghai Diamond
Exchange is opened on Oct. 27th, 2000. After more than five years of
preparation, this exchange finally settles down at the 6th floor of
Jinmao Mansion in the Pudong New Area, becoming the 24th
international diamond bourse.

The 2'700-m2 exchange
centre was officially approved the State Council of China in March
this year. Following the international model, the Shanghai Diamond
Exchange Centre consists of one united administration office, one
trading exchange, auxiliary service organisations and a group of
diamond processing enterprises. Currently, two processing zones,
Lujiazui and Longhua bases, are under pressing construction. Tens of
processing enterprises from Israel, Belgium, South Africa and Russia
have come to settle in the zones.

Like the nature of
diamond, the realisation of Shanghai Diamond Exchange entails
unusual characteristics. Since already years ago, the mayor of
Shanghai has been to Beijing five times to request approval for the
intention of Shanghai to set up this diamond exchange. At that time,
this conception sounds like the Arabian Nights to many central
government officials, as it would require many supportive conditions
that had never existed in China before. And according to the Chinese
mentality, introducing new ideas has to digest much courage and time
to challenge the objection to break old rules. Nevertheless,
Shanghai eventually convinced and won the support from the central
leadership with the following special policies for the new exchange:

The Shanghai Diamond
Exchange is the only one with foreign investment among the various
exchanges of stocks, future, metal and oil etc. in China. The major
Chinese partners are China Handicraft Imp. & Exp. General Co.
and Shanghai Lujiazui Group Company, each has 25% share. Another
five Chinese investors each have 5% stocks. Originally Shanghai
approached to Israeli businesses as the foreign partner of the JV.
But, the co-operation miscarried somehow. Instead, Hongkong
Brilliant Trading Co., Ltd and Hongkong Lee Heng Diamond Co., Ltd
jointly sets up a new company to invest with another 25% share in
the Shanghai Diamond Exchange.

Under the membership
and closed operation system, all members of this exchange can have
their own foreign currency accounts and hence settle all
transactions in USD. In China, a country where policies of
supervision over foreign currencies are adopted, all enterprises
have to submit foreign currencies they earn and can apply to buy
foreign currencies when they need to. Thus, foreign currencies can
not be used at any place. But now, the Shanghai Diamond Exchange
becomes an exception.

All products
traded in this exchange are redeemed bonded. This means imported
diamonds need only to be filed at the Customs whereas are exempt
from tariff, VAT and consumer tax. The diamonds transacted within
the exchange are also free of VAT and consumer tax.

The determination of
Shanghai for this project does not result from its interest in
prospective taxation or augmentation of job opportunities. Actually
transaction in this exchange is exempt from taxation. And the labour
cost in Shanghai is relatively high, therefore setting up a
production line here does not possess clear superiority. But
Shanghai has its own ambition from the perspective of long-term
strategy: to become one of the international financial and trade
centres. With coexistence of exchange centres of silver, futures,
T.B, and pending clearinghouse, Shanghai considers the Diamond
Exchange a link in the financial chain, which can further facilitate
the progress towards the objective. Compared to Hongkong, the only
international diamond trade centre in Asia at present, Shanghai
enjoys a larger processing hinterland throughout the region of the
middle and lower reaches of the Yangtze River and a even closer
geographical link with the Japanese market. Therefore, given the
same taxation and settlement incentives as those in Hongkong,
Shanghai gains more confidence to compete with Hongkong.

It is said that the
Chinese side is willing to transfer some shares to potential foreign
investors. For any inquiry or more information, interested party may
contact the United Administration Office:
7F, Jinmao Mansion, 88 Century Ave., Shanghai
Tel.:+86-21- 5840 1679; 5047 2288 ext. 6075
Fax: +86-21- 5049 8307
Responsible: Mr. XIONG Guoxiang, vice director